07.01.202208:25 Forex Analysis & Reviews: Crypto market update for January 7, 2021

Bitcoin collapsed to the level of $ 2,700 on January 5 and slightly more on January 6. This is completely expected since it was reported regularly recently that the downward trend may continue, despite many over-optimistic forecasts of $ 100,000 in the coming months. In our opinion, the corrective wave b is done forming, so the formation of a downward wave c has begun, which should go beyond the low of wave a. This was already mentioned a lot in the reviews. However, it should be admitted that Bitcoin's decline on January 5 and 6 is associated not only with the wave pattern. There could be two possible reasons: protests in Kazakhstan and the Fed's minutes. Let's analyze each of these reasons separately.

• Protests in Kazakhstan

The protests in Kazakhstan, where people are protesting against the current government, as well as against the rise in gas prices, could affect the rate of cryptocurrencies only on the basis of the factor of geopolitical tension. Oftentimes, when passions heat up in one or another part of the world, some investors hurriedly move from risky assets to risk-free ones, which are the US dollar or the Swiss franc. Therefore, the fall of the cryptocurrency market during the unrest in the country, which accounts for 18% of the world's mining capacity, is not absolutely surprising. Despite the fact that electricity was not turned off in Kazakhstan, the hash rate of the bitcoin network still decreased amid the disconnection of the Internet in the country. It happened on January 5, so it is partly the fault of the Kazakh authorities why Bitcoin plunged. However, it should be noted that reports of Internet disconnection in Kazakhstan were also received earlier on January 5, when Bitcoin showed no signs of panic.

• The hawkish mood of the Fed members in the minutes

Yesterday's release of the minutes of the Fed's December meeting is believed to be a much more compelling reason. Let's start with the fact that Bitcoin started its new decline exactly last night, which is in time of the publication – a perfect match. In addition, almost all major currency instruments reacted to the minutes at that same time. Accordingly, the market waited for the minutes, followed it, and reacted to it. The tone of the statements contained in this document made it clear that the US central bank is extremely serious and is preparing to complete stimulus and start raising rates in the coming months. Moreover, the Fed may raise the rate three times throughout 2022, and most Fed members are in a hawkish mood. The growing inflation leaves them no choice. Furthermore, there are already discussions that the Fed may begin to get rid of those securities that it has been buying up over the past two years. All these messages simply had to reduce the demand for Bitcoin. In this case, we believe that the instrument can and should continue to decline.

A new downward trend section continues to form. At this time, wave b is considered completed, which has taken a noticeable three-wave form. In this case, the instrument is expected to fall at the minimum to the previous low, which is around the level of $ 41,500 and within the expected wave c. Near it, the downward trend may end, but such a shortened third wave is rare. The instrument can be expected below this mark. The news background is not on Bitcoin's side at the moment, so the expectations of a strong wave c are not unfounded. A successful attempt to break the low wave a in the near future and the level of $ 41,515, which equates to 38.2% Fibonacci, is very important.